Can I sell business assets before the company goes into liquidation?

Disposing of company assets before entering liquidation

In theory, selling business assets before your company enters liquidation is possible, but the Insolvency Act outlines strict conditions for doing so. Failure to comply with these requirements can result in allegations of misconduct or fraud, with severe penalties, even if there was no deliberate attempt to deceive.

These restrictions are in place to safeguard creditors’ interests and ensure fair treatment during the liquidation process. Before selling assets in this scenario, certain steps must be followed to adhere to legal obligations and avoid potential repercussions.

Prioritizing the interests of creditors

When your limited company becomes insolvent, you’re required to prioritize creditor interests to mitigate their losses. While it may seem tempting to sell assets to generate funds for creditors, failing to follow strict protocols can lead to allegations of misconduct.

The appointed liquidator scrutinises transactions made before liquidation, sometimes up to two years prior, and may reverse any deemed contrary to creditor interests.

What types of transactions might they investigate?

Antecedent transactions

i. Transactions at undervalue

If assets are sold for less than their fair market value, the liquidator may opt to challenge the transaction through legal proceedings. In such cases, you could face significant penalties, including hefty fines and/or disqualification as a director for a period of up to 15 years. Moreover, if the liquidator suspects fraudulent activity, criminal prosecution is a possibility.

ii .Preferential payments

Preferential payments extend beyond repaying one creditor over another; they can also entail transferring business assets to family members or other directors, for instance.

Any form of antecedent transaction or asset transfer before liquidation may result in personal liability for a portion or all of the company’s debts, director disqualification, and substantial financial penalties.

What should you do to prevent such accusations if you have to sell business assets before liquidation?

Legal disposal of business assets prior to liquidation

i. Call a board meeting

It’s crucial to get approval from all board members before selling assets in these circumstances. This demonstrates thoughtful decision-making, and keeping detailed minutes of the board meeting serves as evidence.

ii. Keep detailed records

Maintaining thorough records of your reasoning and discussions before the sale, including board meeting notes, is essential to demonstrate your good intentions.

You should also seek a complete written valuation from a qualified surveyor and keep all sale-related documents and information. Even if you think it might not be necessary, having these documents ready could be crucial if the liquidator requests them.

iii. Obtain a professional valuation

This is crucial for safeguarding yourself against accusations of wrongdoing. Getting a professional valuation of the asset(s) from a qualified RICS surveyor (Royal Institution of Chartered Surveyors) demonstrates your efforts to get the best value from the sale while considering your creditors’ interests.

The surveyor should also oversee the sale – this level of separation from the process can provide additional protection against allegations of misconduct as a director.

iv. Seek professional insolvency advice

Seeking licensed insolvency assistance demonstrates your intention to act honestly and transparently. You’ll get expert guidance on whether to sell these assets and how to proceed within insolvency regulations.

Vanguard Insolvency is a significant division of the Begbies Traynor Group, the UK’s largest provider of personal services consultancy. Please get in touch with one of our partner-led teams for further details on selling assets before liquidation. We provide a complimentary consultation on the same day and operate from offices across the UK.